sdm: case report sierra agra - idh...juice processing, and whole fruit sales & exporting company in...

SDM: Case Report Sierra Agra

Location: Sierra Leone

Commodity: Mango; pineapple; coconut

Services: Training; harvesting support; planting material; access to

markets

Service Delivery Model assessment: short version

November 2019

Study by NewForesight | © IDH 2019 | All rights reserved

What are SDMs and why are we interested in analyzing them?

2

Service Delivery Models (SDMs) are supply chain structures, which

provide services such as training, access to inputs and finance to farmers,

to improve their performance, and ultimately their profitability and

livelihoods.

Enabling Environment

Service providers Farmers

Training, inputs, services, etc.

ProductsDonors & FIs

Financing for services and infrastructure

Key drivers for

success of SDMs,

benchmarking

Innovation

opportunities to

support

Convening at

sector and

national level

Cross-sector

learning, learning

community

By analyzing SDMs, we aim to support efficient, cost-effective and

economically sustainable SDMs at scale through:

Analyzing SDMs brings a range of

benefits

Farmers and farmer organizations

SDM operator

Investors/FIs

• Better services improve productivity, product

quality, quality of life and social and

environmental outcomes

• Better outcomes: improved productivity, income

and resilience

• Understand your model’s business case

• Gain insights to improve service delivery

• Develop cost-effective SDMs based on insights

• Identify opportunities for innovation and access

to finance

• Learn from other public and private SDM

operators operating across sectors/geographies

• Communicate stories of impact and success at

farmer level

• Common language to make better informed

investment decisions

• Insights to achieve optimal impact, efficiency

and sustainability with investments and

partnerships in SDMs


The Sierra Agra SDM and objectives

3

General SDM information:

Location: Sierra Leone

Timing in analysis scope: 2019-2023

Scale (start of analysis): 3,196 farmers

Scale (end of analysis): 7,196 farmers

Funding: Service provider, co-funded by IDH, Woord en

Daad and Fair Match Support

SDM Archetype*: Global

• Sierra Agra Sierra Leone (SASL) is an organic and fair-trade certified

juice processing, and whole fruit sales & exporting company in Sierra

Leone, West Africa. The company’s core products are fruit concentrate

juices and NFC (not from concentrate) juices.

• SASL operates a processing factory in a special economic zone outside

of Freetown, and sources mangoes from 3,500 farmers (90% of whom

are women) via 60 collection centers.

• SASL is Fair Trade and Organic certified and is a member of the

Sustainable Juice Covenant –a global initiative for sustainable juice

production.

SDM objectives:

* For more info on SDM archetypes, see the IDH Smallholder Engagement Report

1Run a sustainable and inclusive

mixed fruit juices company in

Sierra Leone

2Secure and grow supply of

sustainable fruits, especially

mango, pineapple and coconut

3Improve incomes and livelihoods

of smallholder farmers and their

families

4

Support the local ecosystem

(health services and logistics

support for NGOs, taxable

revenues)

SDM rationale:

Promotion of Good

Agricultural Practices

Improved farmer

livelihoods

Provision of inputs, and

harvesting & logistics support

https://www.idhsustainabletrade.com/uploaded/2017/12/Smallholder_Engagement_Report.pdf


SDM and structure and enabling environment

4

Enabling environment Farmers are impacted by several factors within their

enabling environment. Most important are:

1. Infrastructure

Lack of access to electricity and road network are major

hindrances for the development of the agro supply chain.

Except for local markets, there are no large regional

markets or processing hubs.

2. Price and competitiveness

Mango pricing is determined by Sierra Agra (only organized

buyer in the market) and small traders. Pineapple market is

competitive with many buyers and market-determined price.

3. Labor

Unskilled or semi-skilled labor is abundantly available.

Highly skilled labor such as agronomists and machine

mechanics are difficult to find.

• SASL has established strong relationships with mango,

pineapple and coconut farmers for sourcing fresh

organic fruits across different districts of Sierra Leone.

• Farmers are organized into groups through a collection

center for each big village or a few small villages.

• SASL owns a juice processing plant and warehouse

facility.

• SASL has entered into a partnership with a consortium

of strategic partners to work on various aspects of the

organic fruit juice supply chain.

Smallholder farmers

Sierra Agra

Knowledge

partners

Extension officer

Lead farmer

Processing plant

Collection Center

Cold Storage, IQF, etc.

Clients

Certification

bodies

Local

transporters

Own

plantation

Anchor farm

Flow of goods/

services

Cash flow

Legend

Harvesting

support

Training

Payment

Organic fruit

(raw &

products)

Planting

materials

Access to

markets

Scope of study


Farmer

training

• SASL provides all farmers basic training

on pruning, business, record keeping

and organic farming practices.

• SASL provides advanced training

(harvesting, applying organic farming

practices) to select farmers based on

their location, interest and adoption.

• Farmers applying the training correctly

will be certified organic. Farmers do not

receive organic premiums.

Planting

material

• SASL operates a 5-acre pineapple farm

on their lands to propagate suckers.

SASL provides these suckers for free to

farmers willing to densify or expand

their farms.

• SASL buys improved coconut varieties

from local sources in the region to

provide them to those farmers willing to

invest in their coconut farms.

Services delivered and farmer segmentation

5

Access to

markets

• SASL hires local truck drivers to pick

up the produce at centrally located

buying centers.

o For most – especially remote –

mango and coconut farmers SASL

is the biggest buyer.

o For many pineapple farmers it

saves them the effort of

transporting to town, finding

storage and buyers.

Harvesting

support

• SASL provides tarpaulins to mango

and pineapple farmers for free.

Farmers use these to prevent

damage to the fruits while harvesting

and to ease the sorting.

• SASL equips harvester teams with

machetes and harvesting bags. SASL

pays the teams 1,000 SLL ($0.1) per

dozen coconuts. SDM farmers incur

no costs.

Farmers are segmented in

this SDM:

For each crop sourced, SASL has (or plans to

have) two distinct service packages.

Basic• Access to markets: sell ~5% of produce to

petty traders, and ~32% to SASL• Willingness: less eager to adopt than

AdvancedAdvanced• Access to markets: sell ~5% of produce to

petty traders, and ~43% to SASL• Willingness: more eager to adopt than Basic

East• Access to markets: medium; struggle to sell

the crop and receive lower prices• Willingness: eager to adoptSouth & North• Access to markets: high; majority of produce

sold to the local market• Willingness: eager to adopt

General • Access to markets: low; located in difficult to

access coastal regions• Willingness: eager to adopt

Strategic• Access to markets: medium; closer to

capital, gets better access to market• Willingness: eager to adopt

M

P

C

Mango

Pineapple

Coconut

M

P

C

M

P

C

M

P

C

M

P

C

P

C

M

P

C

M

M

P

P

C

C


Overall SDM impact: Mango farmer P&L

Economic sustainability at farm level

Mango farmer’s costs are very low and income from mango farms approximately contributes to 30% of household income of SDM farmers. Since this income comes without much effort or risk, farmers see this as bonus money bolstering their household income.

SDM buys 32% and 43% of mango production from basic and advanced SDM farmers, respectively, whereas baseline farmers can sellonly 10% of their produce (to local traders). SDM farmers also receive organic practices training, organic certification and are provided tarpaulins during harvesting.

Farmers are not motivated or incentivized to invest more in mango farmers unless current production is entirely sold at competitive prices.

Main revenue drivers

• Demand and offtake: Nearly 75-80% of production goes waste due to limited local fresh market demand and the absence of fruit processors other than Sierra Agra. An increase in demand and offtake of mangoes directly results in higher farm income.

• Price competitiveness: Weak demand for mangoes also causes a lack of competitive market pricing mechanisms.

Main cost drivers

• Harvesting: Main cost. Harvesters are hired by farmers and paid a standard fee of 20,000 SLL ($2.00) for each tree harvested and 500 SLL ($0.05) for carrying each mango crate to the collection center.

• Brushing: Once a year farmers clear the vegetation along the paths accessing mango trees and under the mango tree just before harvesting.

6

Basic Segment

(av. farm size: 1 acre)

Years after farmer joins the SDM

-100

0

100

200

300

400

500

1

290

184

290

52 3 4 6 7 8 9

184

10

US

D

Revenue from traders Revenue from SASL Labor expenses Net income Baseline net income

Advanced Segment


-100

0

100

200

300

400

500

543 61

352

8

174

2 7 9

352

174

10

Net income of farmers

US

D


Overall SDM impact: Pineapple farmer P&L


Baseline farmers in the East segment earn less from pineapple farming than those in North & South segment because: 1) the lattersegment has much better market access ensuring sufficient offtake, and, 2) the East segment holds limited earning potential frompineapple due to smaller farms, less plant density and a lower market price. Pineapple farming contributes ~30% to annual farmer income in the East segment against ~100% in the case of the South & North segment. This gap amongst the two segments’ baselines is expected to widen with the expected increase in the avg. size of North & South segment farms.

SDM farmers have a higher income in comparison to their baselines because: 1) GAP training and an offtake promise from SASL are expected to drive an increase in plant density, farm size and fruit size, and 2) IPM training is expected to reduce the crop damage to 5%. The expected impact of the SDM is much larger on the North & South segment due to better initial/projected conditions (agri-practices & market access) and service adoption rates.


• Production volume: Increase in the volume is driven by: 1) Increased farm size, 2) Increased plant density, 3) bigger fruit per plant, and 4) decreased crop loss to pest.

• Price and offtake by local traders: Farmers with better access to market and sufficient demand are able to sell more of their produce at higher prices.

Main cost drivers• Preparation and maintenance: brushing, when done via hired

labor, costs 200,000 SLL ($20.00) per acre.• Harvesting: and carrying pineapple to the collection center, when

done via hired labor, cost 1,000 SLL ($0.1) per dozen, respectively.

• Composting: hired labor, would cost 200,000 SLL ($20) per pit/application-cycle. Number of pits depends upon the plant density and farm size.

7

East Segment

(av. farm size: 0.81 acre)


US

D

North & South Segment

(av. farm size: 3 acre in year 1)

971

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

4

777

1 3 7652 8

4,814

9

1,866

10


US

D

16496

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

61 2 3 4 5 7

96

8 9

756

10

Revenue from traders Baseline net incomeNet incomeRevenue from SASL Labor expenses


Overall SDM impact: Coconut farmer P&L


Baseline farmers in the Strategic segment earn more from coconut farming than those in the General segment because the latter: 1) are located in challenging coastal terrains with limited access to market/demand, and, 2) have a higher production proportion of ripe fruits (which fetches a lower price than young ones). The above factors result in coconut farming contributing to ~30% of annual farmer revenue in the General segment as compared to ~60% in the case of the Strategic segment.

SDM farmers in both segments earn more than baseline farmers because of additional offtake from SASL. The Strategic segment’sincome from coconut is expected to increase faster than the General segment due to SASL plans to maximize sourcing from the first, while also increasing their production volumes. SASL will encourage farm expansion and the planting of shorter varieties. Due to the expected investment in increasing farm size, and general maintenance of and composting for young unproductive plants, there is expected a dip in the cashflow of Strategic SDM farmers from year 3 to 8. To avoid the cashflow dip, either SASL should ensure financing services for farmers or reduce the rate of expansion*.


• Demand and price: Currently supply exceeds demand for local consumption. Providing access to export markets would result in higher offtake and better prices.

• Production: Coconut trees are plentily available along coastal regions. And increase in farm production would increase revenue, only if offtake is ensured.

Main cost drivers

• Harvesting: and carrying of coconuts to the collection center, done via hired labor, costs 1,000 SLL ($0.1) /dozen. SASL will provide free harvesting service for their purchase.

• Composting: is expected to be produced by farmer via hired labor, would cost 200,000 SLL ($20) per pit per application-cycle. Number of pits depends upon the plant density and farm size.

8

General Segment



347347

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

61

99

2 43 75 8 9

99

10

US

D

Revenue from traders Labor expensesRevenue from SASL Net income Baseline net income

Strategic Segment

(av. farm size: 1 acre in year 1)

944

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

575

51 6

1,911

2 43 7 8 9

575

10


US

D

*current calculations assume doubling of farm size in 3 years, starting from year 3

Study by NewForesight | © IDH 2019 | All rights reserved 9

Specific service impact: sensitivity analyses

Pineapple expansionThe North and South pineapple farmer segment is expected to

increase the average farm size from 1.2 ha to 2.9 ha and

average plant density from 2,500 to 5,000 plants/ha. Under the

current, optimistic assumptions, farmers are projected to raise

incomes from $971/year to 4,671/year. However, if farmers are

not able to expand, the actual results may vary significantly.

At the same time, farm size growth and plant density growth

can be also seen as a high impact growth levers for farmer

income. E.g. as soon as SASL is able to drive the plant density

up by another 800-1000 plants/ha or increase the farm size by

20-25%, the farmers will grow beyond the poverty line.

Coconut expansionAggressive expansions of SASL’s operation (e.g. 25% to 50% per

year) may be relevant if SASL intends to scale-up fast and ensure

the reliability of supply by sourcing majorly from Strategic segment.

In that case, farmers will need to be provided with financial support

to manage the cashflow dip.

If SASL decides to pursue a slow scale-up, then a farm expansion

rate of 10% or less may suffice. This would avoid a dip in the

cashflow but would also delay the improvement in farm incomes.

The potential returns for farmers from an investment in farm

expansion are contingent on the security of future offtake. Unless

SASL formally commits offtake, this investment is extremely risky

from farmers’ perspective because the market is already

oversupplied.

Pinneaple income for North and South segment

($/year)

2,500 3,500 4,500 5,000 5,500 6,500

0.5 422 587 782 850 947 1,112

0.7 557 776 1,032 1,122 1,251 1,469

0.9 736 1,024 1,363 1,482 1,652 1,940

1.2 971 1,353 1,800 1,958 2,182 2,563

1.5 1,207 1,681 2,238 2,433 2,711 3,185

1.9 1,501 2,089 2,781 3,024 3,370 3,958

2.3 1,865 2,597 3,456 3,758 4,188 4,919

2.9 2,318 3,227 4,295 4,671 5,205 6,114

Plant density (plants/ha)

Farm

siz

e (

ha)

HH

Median

income

Poverty

line

912

459400

575

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1 2 3 4 5 6 7 8 9 10

10% expansion

40% expansion

20% expansion

No expansion (baseline)

Farm

incom

e (

$)

Projected coconut farming income ($) at different rates

of farm expansion


SDM P&L, scale and sustainability

Economic sustainability of the program

• The combined service provision activities of SASL are loss-

making, peaking and staying stable from 2020 onward. SASL

envisions to recoup most costs through larger sales volumes

and increased margins in future.

• There is no strategy around recovering service costs through

direct payments; i.e. all services are provided to farmers free

of charge. Charging for services is a challenge: most farmers

are used to getting NGO support for free and/or have no

resources; others are only loyal to those traders providing

them with free services.

10

Overall SDM P&L by service (‘000 $) Economic sustainability of commercial operations

• SASL is already running a profitable mango business from

2017 onwards, growing steady from 2020 onwards.

• The dip in 2020 is a result of necessary investments in

processing capacity and infrastructure, while sourcing

volumes of other crops are still small.

Commercial operations P&L (‘000 $)

202320212017 2018 2019 2020 2022

Donor funding Harvesting

Training Planting materials

EBIT

2017 2022 20232018 2019 2020 2021

EBITMango

Coconut

Passionfruit

Pineapple Orange

Procurement

Processing

Overhead

Services net


Recognizing current processing constraints

11

7

98

6

72

0

20

40

60

80

100

15

-May

1-J

un

1-M

ay

61%

14-J

un

Low utilization during mango season

• Early in the mango season, daily volumes are not enough to

have the processing line run at full capacity. Roughly from

May 6th onward, mango is abundant. Still, during the season,

the line runs at only 61% capacity on average.

• The main cause of underutilization is the frequent

breakdowns of the machines. When this happens the buying

teams are informed not to buy and deliver mango the next

day. This can be seen from the low volumes brought in on

May 21st and June 1st. On May 18th only half the line’s

capacity is supplied as leftovers of the day before are still

being processed due to minor machine failures.

• Another cause is the breaking down of trucks as a result of

long distances, poor road conditions during heavy rains and

the state of the vehicles. While drivers are contracted, they

are liable only to a certain extent. SASL can not expense

incurred losses from low utilization to those drivers.

Low utilization throughout the year

• The mango season runs from the end of April to mid-June,

amounting to around 60 days. Pineapple is harvested from

the end of May until the end of July, with another 30 days

around November, totaling roughly 90 days per year.

Coconut can be sourced and processed for 300 days

throughout the year.

• With mango and pineapple seasons overlapping and

coconut not yet processed the current processing line is

operational at around only 80 days per year.

Daily mango supply and processing capacity

Mango v

olu

mes (

MT

)

Daily supply (MT) Daily capacity (MT) Average utilization

Seasons of main crops over the year


Opportunity pathways to improve utilization

12

Pathway Rationale

1. Distant mango sourcing • The mangoes grown in Koinadugu district ripen later in the season and can hence be processed

during otherwise idle days.

• While extending the mango season, it overlaps with pineapple being supplied and processed (seen

next pathway).

2. Other crops (pineapple,

coconut)

• With only slight modifications the same processing line can be used for pineapple and coconut, and

later passionfruit and orange.

• With pineapple only partly overlapping the mango season and coconut being harvested throughout

the year (300 days) the machines can be used during otherwise idle days.

3. Repair current

processing line

• Due to regular breakdown during the season, the within season utilization rate is only at 61%, while

a rate of 80% should be feasible.

• Repairing the current line and making sure future breakdowns can be repaired relatively quickly

(e.g. having an on-site mechanic and spare parts readily available) will reduce down days and

improves the utilization rate

4. Invest in refrigerator • Refrigeration allows storing fresh fruits to be processed later (after peak days; on client demand).

5. Invest in IQF (Individual

quick Freezing)

• Cold storage allows freezing fruits to be sold as frozen fruit chunks.

• For mango this would be an immediate opportunity as there is still a large untapped supply base.

6. Invest in dehydration • Dehydration allows drying fruits (at a decentralized location) to be sold as dried fruit chunks.

7. Install new production

line

• Installing a new line will further expand processing capacity and allows processing to different fruits

in parallel.

• Only necessary as volumes are expected to greatly exceed currently installed processing capacity.

8. Invest in ripening

chamber

• A ripening chamber allows quick ripening of early harvested mangoes, allowing processing even

before the current start of the season.

SASL’s priority in growing the business and generating farm-level value is to increase sourcing volumes. Below investments are the key

opportunities to invest in to either expand capacity and/or improve utilization to be able manage the growing supply.


Total value generated at farm level

13

Assessing three sourcing scenarios

• Three scenarios of total value generated (farm-gate price times volumes per year) have been estimated:

1) assuming current capacity constraints sourcing volumes at 2019 levels;

2) assuming target volumes as set by SASL can be processed accordingly; and

3) assuming processing capacity is expanded beyond sourcing targets based on assumptions as outlined in previous slides.

• Total value generated per scenario is as follows:

1) A total (2017-2023) farm value of $700,000 is generated if volumes stay at current levels

2) Another $700,000 is added as SASL manages to scale up production in line with their production and install the necessary

processing capacity.

3) Further expanding capacity can add another $2,700,000

Obviously, the projection assumes all the other variables to stay constant, including the market price of the products produced.

0

1.000

2.000

5.000

3.000

4.000

4.795

2017 20202018 2019 2021 2022

684

1.371

2023

1.728

Current volumes (2019) Target volumes Additional capacity

‘00

0 $

Total farm value generated (‘000 $ per year, all farmers)

Study by NewForesight | © IDH 2019 | All rights reserved 14

SDM outcomes and main learning questions

1

2

3

SDM objectives* Projected outcomes

Run a sustainable mixed fruit juices

company in Sierra Leone

Secure and grow supply of

sustainable fruits, especially mango,

pineapple and coconut

• Sourcing volumes are expected to grow 68% y-o-y in the period 2017-2023.• Supply is secured by being the sole off-taker buying in bulk (mango, coconut),

building relationships with communities via SASL field staff and free services (mango, pineapple, coconut), and managing own plantations (pineapple, passion fruit)

Improve incomes and livelihoods of smallholder farmers and their families

• Farmers see the gap to poverty decreasing from around 85% to 70% (mango), 92% to 64% (pineapple East) and 92-66% to 70-51% (coconut segments). North & South pineapple farmers already earn well above the poverty line.

• Connecting farmers to export markets is by far the biggest impact driver. Expanding pineapple and coconut farms by providing planting materials is the most impactful service.

Learning question SDM insights

What is the most financially viable option to

increase the processing capacity?

To assess this, more accurate data is required on the capacity and cost of the

respective processing investments, and gross margins of the existing (e.g. mango

and pineapple NFC) and new (e.g. dried fruits, frozen fruit chunks) products need to

be verified. As costs and benefits become clearer, SASL can strategize on the type

(drying chambers, blast freezer) and timing of investment as well as prioritization of

fruits to process.

What is the optimal combination of services

that can be delivered to farmers?

Access to export markets is the main value add for especially mango and coconut

farmers. Beyond the off-taking relationships, farmers need to be and are served by a

combination of training, planting materials and harvesting support, with a slightly

different focus given the type of fruit they grow.

• By 2023, the projected annual EBIT is $3.4 million, and a total value generated at farm-level of $1.4 million. It is key to this, to have a capable management team; right investors and strategic partners; abundant supply and limited competition.

• The main risk is the limited clarity about processing expansion capacity and costs necessary to process the growing volumes efficiently.

These results do not represent an official assessment of

SDM success or failure by IDH or NewForesight. An

indication is given based on the analysis done in this

forward-looking study and assumptions provided by the

SDM operator(s). Actual assessment should be done

during and after the SDM, using measured data

*A fourth objective is Support the local ecosystem (health service and logistical support for NGOs). However, assessing the total impact SASL has on the local ecosystem (beyond farmer

incomes, gender equity, and environmental resilience) is out of scope of the SDM analyses and hence not assessed.


Key insights

15

• The global demand for mixed juices (fruit and fruit-vegetables)

is growing.

• Growing domestic demand for juices is not satisfied yet locally.

• Raw materials are abundant, allowing relatively easy scale-up

of mango volumes and expansion into other fruits and

vegetables.

• Limited competition, establishing a relatively strong market

position for SASL.

• Most fruits are currently mainly grown organic by default

enabling SASL to market and sell organic juices.

• SASL processing facility and plantations are located in the

Economic Freezone close to Freetown.

• Poor infrastructure in combination with heavy rainfall leads

to high transportation costs and underutilization of the

processing lines.

• Relatively untapped supply of organic fruits and vegetables

available in abundance may attract competitors to market.

• Changing weather patterns affected fruit harvests this year

as rains came in later than expected.

• Pests and diseases are a consistent risk of crop yields and

quality.

• To guarantee fruits are grown and sourced organically will be

more difficult with a growing chemical industry to combat

pests and diseases in Sierra Leone.

• SASL can become more efficient by improving the utilization

of the processing line.

• SASL could improve alignment between strategy and

implementation.

• There is limited capacity on key business positions, which

places additional pressure on the implementation team.

• There are infrastructural constraints. The SASL processing

line is not connected to the grid, relying heavily on fuel-based

generators.

Key risks

Improvement areas

• As a trader with a sustainability vision, SASL has gathered a

close-knit network of diverse and eager partners and investors

for technical support and funding.

• The SASL team has strong ties with both the international

(buyers) and the local community (government).

• SASL has a capable implementation team in place necessary

to manage, scale-up and improve the current operations in

factories and fields.

Key strengths

Key opportunities


Silvana Paniagua Tufinio

Senior Consultant

Wouter van Monsjou

SDM Manager

David Black

Program Officer, Fresh & Ingredients

16

For more information and insights on

SDM’s, see the IDH Smallholder

Engagement Report

Vishnu Reddy

SDM Manager

Apoorve Khandelwal

Consultant
https://www.idhsustainabletrade.com/uploaded/2017/12/Smallholder_Engagement_Report.pdf

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